The deal concerning Enemalta Corporation announced last Wednesday when the Prime Minister was visiting China seems to be just what the doctor ordered.
In one fell swoop Malta will be receiving a direct foreign investment of some €200 million and the government’s liability on Enemalta’s debt will be drastically decreased.
Enemalta’s debt has surpassed the staggering figure of €800 million, with the credit rating of this important corporation practically going to the dogs. This, in turn, could have even affected the credit rating of Bank of Valletta that – as I understand – carries the burden of a hefty part of this debt, and of Malta itself, since the Government is the final guarantor of this debt.
If I have got it right, Shanghai Electric Power – a subsidiary of China Power Investments – will be paying some €200 million for a minority stake in Enemalta. I understand this stake will be 30 per cent or thereabouts. It is not clear whether the petroleum division that had been earmarked for hiving off and subsequent privatisation under the preceding administration will be part of the deal. Personally, I think it should not be.
According to the way I see it, and if my figures are correct, the €200 million will reduce Enemalta’s debt to €600 million. This remaining balance of the debt will be inherited by a new company with a Chinese shareholding.
This means that government’s liability on Enemalta’s debt would be reduced to 70 per cent of €600 million, or €420 million. In one fell swoop the government would have almost halved its liability on Enemalta’s debts. In the circumstances, this is an opportunity that the Government can hardly miss.
It can be argued that Malta’s essential services should not be privatised. What is essential and what is not, however, is an argument that will never end. In practical terms, if the State still keeps a controlling majority share of a utility, the argument against the partial privatisation of such a utility becomes somewhat of a damp squib.
Moreover, one has to be pragmatic. As far as I know, no one has ever come up with a credible repayment plan regarding Enemalta’s debts, and this proposal is by far the best solution for the problem to date.
Some have brought up the red herring of Malta’s relations with China, as if these should be an athema, and recalled Dom Mintoff’s famous visit to Mao Zedong’s Beijing in 1972 when he signed an agreement with China that led to the construction of the Red China dock and the launching of a number of state-owned factories that all turned out to be lame ducks.
This is the reaction of people living in a time warp. Joseph Muscat is not Mintoff, and the China of 1972 is not the China of 2014. Anyone who does not realise this should wake up and smell the Jasmine tea.
One of the major differences between then and now was that the infamous ‘Chinese projects’ were government-owned, and the Chinese had no financial stake in their success. Moreover, the China of yesteryear was a technological and economic dinosaur. Not so the China of today.
Malta has, in fact, lagged behind when it comes to attracting Chinese investment. Chinese direct investment in Europe rose to $10 billion (€7.5bn) in 2011. At least a quarter of Chinese outbound direct investment is going to Europe, more so as the financial crisis led China to consider attractive opportunities to snap up medium-sized industries with experienced staff, advanced technology and products.
Europe has attracted Chinese investment in utilities and transportation infrastructure – including a stake by China’s sovereign wealth fund in London’s Heathrow Airport – as governments had no option but to privatise assets and attract foreign capital.The proposed Chinese investment in Malta is a just a small drop in this enormous flood, and must be viewed as such.
The deal would not have been attractive to the Chinese had Malta not joined the EU
The proposal floated last Wednesday is not a one-sided deal that is only in the interest of Malta. The joint venture company that will be set up in Malta specialising in the manufacture of photovoltaic panels will give China easy access to the internal EU market. It fits in with the notion of China asserting itself as the world’s leading economic power.
Globalisation has led to Europe welcoming Chinese investment. Malta can’t afford to be an exception.
What is ironic is not that a Labour government has turned to privatisation to solve debt problems that are not of its own doing, but that the deal would not have been attractive to the Chinese had Malta not joined the EU – a move that Labour had opposed so vehemently.
Moreover, the idea of using Enemalta’s qualified human resources to service other Chinese energy projects in Europe and Africa also helps to mitigate the over-manning problem in the corporation, a problem that will exacerbate when the Marsa power station is finally closed.
Above all, the deal also confirms that Chinese investment in the energy sector in Europe is today a reality that one can hardly ignore.
It seems to be a win-win situation, although – as always – the proof of the pudding is in the eating.
micfal@maltanet.net
Michael Falzon is an observer on Enemalta’s Oil Procurement Committee.